Stocks added to gains on Wednesday after the Federal Reserve kept rates unchanged, as the central bank and investors continue to assess how President Trump’s tariff policies might affect economic growth.
The Dow Jones Industrial Average jumped 476 points, or 1.2%, to 42,058. The S&P 500 gained 1.4%, and the Nasdaq climbed 310 points, or 1.8%.
The central bank kept its benchmark overnight interest rate unchanged in the 4.25%-4.50% range, and indicated that two quarter-point interest-rate cuts were likely later this year, the same median forecast as three months ago. The Fed also forecast slower economic growth and higher inflation.
There was substantial disagreement among policymakers about the appropriate path of policy, pointing to uncertainty among members over how to handle the effects of the Trump administration’s policies.
The Fed also said it would reduce the pace of the drawdown of its still-massive balance sheet, as it faces challenges in assessing market liquidity during an ongoing impasse in Congress over lifting the government’s borrowing limit.
“Given growing worries around tariffs and how they could affect US growth and inflation,” Matthias Scheiber, head of the multi-asset solutions team at Allspring Global Investments in London said the Fed “took a widely expected ‘wait and see’ approach on rates.”
Scheiber added: “For 2025, the interest rate market currently expects the Fed will cut rates to around 3.75% by year-end. A lot will depend on how the inflation-versus-growth trade-off develops—growth may continue weakening, and the Fed may need to cut rates more forcefully than expected.”
Traders still see the Fed lowering borrowing costs by at least two 25-basis point cuts by December, with a 62.2% chance for a cut of at least 25 basis points in June, according to data compiled by LSEG.
